Pensions: Government says yes to reforms but no to further cuts

Alexis Tsipras said on Sunday, his government will not give in to “unreasonable” demands as the debt-ridden country braces for critical negotiations with international creditors on the thorny issue of pension cuts.

The warning came just days after Athens got 1 billion euros under the terms of its third bailout program.

And already, the storm clouds are gathering over Athens as some some very difficult decisions will have to be taken by the ‘first time left’ government of Greece, particularly decisions to further reduce pensions, that Alexis Tsipras, may not be able to get through parliament.

Greece’s pension system has become a flash point in the new government’s talks with its international creditors. Prime Minister Alexis Tsipras has vowed to fight more cuts to the system, while Greece’s creditors say more cuts are probably necessary to ensure the government can pay its bills.

“The creditors have to know that we are going to respect the agreement to the letter, but that doesn’t mean we are going to succumb to unreasonable and undeserved demands,” Alexis Tsipras told Real News newspaper.

Despite the rhetoric surrounding Greece’s supposedly overly indulgent pension system, Greece’s pension plan isn’t as generous as most believe. A report compiled by The Wall Street Journal’s Matthew Dalton found that, when adjusting data for demographic makeup and looking at pension spending as a percentage of GDP, Greece actually spends less on citizens over the age of 65 than Luxembourg, Austria, the Netherlands, France, Finland, Belgium, Ireland, Italy, or Germany. It also spends less than the Eurozone average.

Greece is home to one of the most “aged” populations in Europe.

Adjusting for the fact that Greece has a lot of older people[ 20% of the population are over age 65 ], its pension spending is below the eurozone average.

In fairness to Germany and other scolds of Greece, this only happened after major cuts imposed on the pension system by the European Commission, the International Monetary Fund and the European Central Bank — the troika representing its international creditors.

Pensions have been cut by an average of 27 percent between 2010-2014 and by 50 percent for the highest earners. The average retirement age was raised by two years in 2013 and again to 67, and Greece has said it is willing to curb early retirement benefits further.

Monthly pensions have already shrunk to an average of €833 from an average of €1,350 in 2009, according to the Greek Labour Institute (INE-GSEE), the organization behind Greece’s largest union.

But it’s also worth remembering that 15% of older Greeks were at risk of poverty in 2013, above the eurozone average of 13% and a figure that has almost certainly risen over the last two years.

Despite the relatively high proportion of GDP Greece spends on pensions 45% of Greek pensioners receive monthly payments below the national poverty line.

Greece’s pensioners aren’t getting much in way of pensions because the deceptive amount allocated for them is spread over one of Europe’s largest elderly populations. And the figures are further distorted by the fact that there are no other long term state benefits for unemployment, incapacity, low income, housing subsidies or welfare benefits to bridge the time to retirement which would reduce the pensions expenditure. In many cases, the pensioner is the person who supports two or three generations of a whole family.

However, that is not to say that the Greek pension system is not in urgent need of reform. One area where Greece can clearly do better is by simplifying its pension system. In 2013, Greece had 133 separately administered public pension funds. Overhauls begun in 2008 — and continued during overhauls imposed by the troika — were supposed to cut this number to below 13. But only recently has the government gotten a true picture of how much it spends on pensions by assigning all pensioners a social security number. Those efforts appeared to lead to a significant upward revision of the pension spending that Greece reported to Eurostat in 2012.

The Greek government has said that consolidating these various pension funds is one of the reforms pursued by the previous government that it will continue.

It also acted to put an end to a system that saw as many as 580 professions listed as “arduous” and/or “dangerous” and therefore able to retire early, sometimes at the age of 50 for women and 55 for men. This included factory workers but also hairdressers (who work with chemicals) and TV presenters (who risk picking up germs from their microphones).

“We have no commitment to find the money exclusively from pension cuts. On the contrary, the agreement provides the option of equivalent measures, which we have already processed,” said Alexis Tsipras.

The labour ministry is working on a new social security system under which state-guaranteed pensions will be reportedly cut by half — to a minimum of 384 euros — and the rest will depend on a person’s income and years of social security payments.

“If we don’t face the problem of the social security system today, in a year we won’t be able to pay pensions,” the labour ministry’s chief officer, Andreas Nefeloudis, told Mega channel TV on Sunday echoing the Prime minister.

It remains to be seen if the quartet of lenders will insist on more pension cuts when they visit Athens later this month, risking the collapse of the government and another round of national elections.